responding to unseen data - investment appraisal - teacher slides
TRANSCRIPT
A Level BusinessLesson Elements
Task 1 – Investment Appraisal Calculations
Task 1 – Investment Appraisal Calculations
Task 1 – Investment Appraisal Calculations Workings
Payback period
Machine A
Cost £300.000 = £60.000 (year 1)
+ £240.000 (year 2)
= 2 years or 24 months
Task 1 – Investment Appraisal Calculations Workings
Payback period
Machine BCost £500.000 = £100.000 (year 1)
+ £200.000 (Year 2)
+ £200.000/£400.000 (year 3)
= 2.5 years or 30 months
Task 1 – Investment Appraisal Calculations Workings
Payback period
Machine CCost £1200.000 = £50.000 (year 1)
+ £150.000 (year 2)
+ £900.000 (year 3)
+ £100.000/£1200.000 (year 4) = 3.083 years or 37 months
Task 1 – Investment Appraisal Calculations Workings
ARP
Machine A
Cash inflow = £60.000 + £240.000 + £240.000 + £240.000 = £780.000
Cash inflow – cost = £780.000 - £300.000 = £480.000
£650.000/4 years/£300.000 cost x 100 = 40%
Task 1 – Investment Appraisal Calculations Workings
ARP
Machine B
Cash inflow = £100.000 + £200.000 + £400.000 + £450.000 = £1150.000
Cash inflow – cost = £1150.000 - £500.000 = £650.000
£650.000/4 years/£500.000 cost x 100 = 32.5%
Task 1 – Investment Appraisal Calculations Workings
ARP
Machine C
Cash inflow = £50 000 + £150 000 + £900 000 + £1 200 000 = £2 300 000
Cash inflow – cost = £2 300 000 - £1 200 000 = £1 100 000
£1 100 000/4 years/£1 200 000 cost x 100 = 22.9%
Task 1 – Investment Appraisal Calculations Workings
NPV
Task 3 – Which Investment?
Task 3 – Which Investment?
Scenario 1The company is experiencing significant cash flow difficulties which are affecting its ability to gain further finance from its bank.
Task 3 – Which Investment?
Scenario 2Many of the company’s shareholders are threatening to sell their shares if share dividends do not increase in the next few years.
Task 3 – Which Investment?
Scenario 3The company is new and the shareholders are willing to take risks for potential high returns.
Task 3 – Which Investment?
Scenario 4The directors of the company are risk averse. They are cautious and experienced. Option C involves diversification.
Task 3 – Which Investment?
Scenario 5The company operates in a market which is subject to rapid change, especially beyond year 3. The company has no cash flow problems and the investors want high returns.
Task 3 – Which Investment?
Scenario 6The company trades on its ethical and socially responsible branding. Project B would not be perceived by the public as environmentally friendly.
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